IN THE ITAT MUMBAI BENCH ‘E’
Seaking Infrastructure Ltd.
v
Commissioner of Income-tax, Central -II, Mumbai
SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND V.K. GUPTA, ACCOUNTANT MEMBER
IT APPEAL NO. 4030(Mum.) of 2007
[ASSESSMENT YEAR 2002-03]
October 31, 2007
Section 263, read with sections 10(23G), 36(1)(iii), 43B and 45, of
the Income-tax Act, 1961 - Revision of orders prejudicial to interest of
revenue - Assessment year 2002-03 - Commissioner examined assessment order
passed by Assessing Officer and having noticed that
Assessing Officer had allowed claim of assessee for exemption of capital gains
under section 10(23G) arising out of conversion of certain equity share of a
company ‘G’ as stock in trade in assessment year 2000-01 and subsequent
sale of these shares in assessment year 2002-03 and had also allowed claim of
interest of Rs. 1,87,06,108 on borrowed funds from a company ‘M’ used for
purchase of shares as a business expenditure without verifying fact that
conditions laid down in section 10(23G) had not been satisfied and interest
paid on funds utilized for purchase of shares held as an investment was a
capital expenditure not allowable under section 36(1)(iii) and even otherwise
interest paid to ‘M’ was covered by provisions of section 43B, set aside
assessment order and asked Assessing Officer
to frame assessment de novo - Whether since Assessing Officer
having examined detailed reply furnished by assessee had adjudicated issue by
passing a speaking order and further since condition of section 10(23G) even
otherwise stood satisfied by assessee and further since assessee had rightly
claimed interest amounting to Rs 1,87,06,108 by way of deduction under section
36(1)(iii) and further since interest was also allowable under section
43B and further since nothing had been placed by revenue on record that view
taken by Assessing Officer was not a plausible view, Commissioner was not
justified in invoking powers under section 263 for revising assessment order -
Held, yes
The Commissioner examined the assessment order passed by the Assessing Officer and having noticed that the Assessing Officer had allowed the claim of the assessee for exemption of capital gains under section 10(23G) arising out of conversion of certain equity share of a company ‘G’ as stock-in-trade in the assessment year 2000-01 and subsequent sale of these shares in the assessment year 2002-03 and had also allowed claim of interest of Rs. 1,87,06,108 on borrowed funds from a company ‘M’ used for purchase of shares as a business expenditure without verifying the fact that the conditions laid down in section 10(23G) had not been satisfied and the interest paid on funds utilized for purchase of shares held as an investment was a capital expenditure not allowable under section 36(1)(iii) and even otherwise the interest paid to ‘M’ was covered by the provisions of section 43B, proposed the assessment to revise under section 263(1) and further having not been satisfied with the explanation furnished by the assessee held that the assessment order passed by the Assessing Officer was both erroneous and prejudicial to the interest of the revenue. He, accordingly, set aside the same and asked the Assessing Officer to frame the assessment de novo.
On appeal to the Tribunal:
This was not a case where the Assessing Officer
had not adjudicate the issue at all in the assessment order. During the course
of assessment proceedings, a specific query was raised in this regard and the
assessee had filed a detailed reply before the Assessing Officer justifying its claim. The Assessing
Officer having examined the detailed
reply furnished by the assessee had adjudicated the issue by passing a speaking
order. (
Further the assessee, in response to the notice issued under section 263,
with regard to the claim of exemption of capital gains under section 10(23G)
had categorically stated that
eligibility of exemption under
section 10(23G) solely rested with the CBDT and the company ‘G’ had been
notified by the CBDT to be given exemption under section 10(23G) for the assessment year
1998-99 to 2003-04. The condition of section 10(23G) even otherwise
stood satisfied by the assessee-company, as ‘infrastructure capital company’ as
defined under Explanation-1 to section 10(23G) means such company as has made investments
by way of acquiring shares or providing long term finance to enterprises wholly
engaged in the business referred to under section 10(23G). Through
written reply, the assessee had also asked the Commissioner to explain as to
how it did not satisfy the condition as stipulated in section 10(23G) to
claim exemption from long term capital gain arising on sale of equity shares of
company ‘G’. This argument was not dealt with by the Commissioner in his
revisional order. Further the long-term
capital gain in the instant case was properly computed as per provisions of
section 45. Further the conversion in stock-in-trade was in the assessment
year 2000-01, when no sale was made. The
sale was made in the assessment year 2002-03. Therefore, the total gain was to
be bifurcated between long term capital gain for the period of holding up to
the date of conversion and subsequently till the date of sale, the gain would
be the income from business, it being stock-in-trade. This calculation was as
per provisions of Section 45. This factual position was explained to the
Assessing Officer during the course of assessment proceedings. (
Further with regard to the claim of interest on
borrowed funds from the company ‘M’ used for the shares as a business
expenditure, it was stated that the
assessee itself had offered interest of Rs.98,32,096 for disallowance and the
Assessing Officer had also disallowed the same out of the total interest
payment of Rs.2,85,38,204. The assessee had claimed interest amounting to Rs.1,87,06,108
by way of deduction under section 36(l)(iii). This claim of interest was
made in respect of shares of the company ‘G’ which were held as stock-in-trade
by the assessee. This factual aspect was also explained to the Assessing
Officer during the course of assessment proceedings. The assessee had also
claimed that interest was allowable under section 43B, as the same was paid in
the assessment year 2002-03. (
It is well settled that if two views are possible and Assessing Officer was taken one of it, such view
cannot be revised under section 263. (
Nothing had been placed by the revenue on record that the view taken by the Assessing Officer was not a plausible view. Though the Commissioner might not agree with the view taken by the Assessing Officer but it did not mean that the view taken by the Assessing Officer was not a plausible view. Before invoking provisions of section 263, it is necessary for the revenue to make out case that assessment order is not only erroneous but prejudicial to the interest of the revenue. In the instant case, both these conditions were not satisfied. Therefore, the Commissioner was not justified in invoking his powers under section 263 for revising the assessment order.
Therefore, the impugned order passed by the Commissioner deserved to be
set aside. (
Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC), CIT v. Gabriel India Ltd., [1993] 203 ITR 108/71 Taxman 585 (Bom.), Usha Martin Industries Ltd. v. Dy. CIT [2003] 86 ITD 261 (Kol.) and F.A.A. Jasdanwalla v. CIT [IT Appeal No. 1926 (Mum.) of 2003 - followed.